1H20 results slightly beat our expectations. Total revenue increased by3.3% YoY to RMB74,007 million, better than our expectation mainly on highe-than-expected trading business revenue. Gross margin of self-produced products slightly increased by 0.3 ppts YoY to 47 5% mainly thanks to lower coal costs. Bottom line was up by 5.3% YoY to RMB16,086milion, slightly better than our expectation.
The peak season which started earlier is to offset impact from the COVID-19 pandemic and floods. Cement shipments in east China strongly rebounded as rainfall significantly turned weaker in August. We expect thatcement output in east China in 2H20 is very likely to hit a record high. In addition, we believe that as local demand in northeast China and Vietnam recovers, pressure from external clinkers will remain controllable and cement price in east China will continue to steadily rebound in 2H20.
We have lifted our EPS forecasts for 2020/2021/2022 by 2.8%/1.5%/2.0%, respectively. We have mainly: 1） revised up sales volume assumptions for both self-produced and traded cement products based on brighter demand outlook; 2） sharply lifted assumptions for trading revenue of other materials; and 3） cut SG&A expense assumptions based on larger-than-expected savings on staff costs in 1H20.
Maintain "Buy"with a TP of HK$67.90. The Company has demonstrated its strong resilience in 1H20 under exogenous shocks from the pandemic, floods and external clinkers. We expect decent growth in the Company's 2020annual results and the current valuation is attractive. Our TP represents 9.1x/9.1x/9.0x 2020-2022 PE ratio and 2.0x 2020 PB ratio.